What is the Process of Home Buying?
When you are ready to begin searching for a new home, the process can seem overwhelming. Not only do you have to take a look at the homes themselves, but you have contract negotiations, inspections, financing and more. That’s why it’s important to have a professional REALTOR® on your side to guide you through the process and help look out for your best interests along the way.
A typical transaction roadmap involves the following steps:
Loan Pre-Qualification -> Home Search -> Write an Offer -> Negotiate a Contract -> Property Inspections -> Secure Financing -> Closing
While each transaction can be different, these critical elements form the backbone of most real estate purchases in Texas.
One of the largest pieces to the home buying puzzle is financing. While some people prefer to pay cash for their homes, a large majority take out a mortgage in order to buy property. Getting pre-qualified with a knowledgeable lender can help you to understand:
- The price range of homes you can afford
- Loan types and their unique requirements
- Monthly payments, taxes and escrows
- Closing costs
- Credit scores
Once you have a good grasp of your financing options, your lender can provide you with a letter stating your pre-approval status. If you are looking to purchase a home by paying cash, your financial institution can issue a similar letter verifying funds.
Many sellers in today’s market require evidence of financial viability before even reviewing any offers. With that in hand, then you can move on to finding the right home.
One of the most helpful things you can do as a consumer is to come up with a list of priorities in your home search. If there’s a neighborhood or school district you have to be in, that can help you to narrow in on the right home much more quickly. If you have special needs (such as wanting to keep sheep) or extreme flexibility in your living space, it’s important to communicate these issues to your agent up front. That way they can work with you to narrow down your criteria and implement a comprehensive search of available homes.
Many people take up the home search themselves through the internet. This can be extremely informative, but also misleading, as many websites contain outdated or inaccurate information. Kimberly Howell Properties agents have access to thousands of the most up-to-date listings in and around San Antonio. This includes Boerne, New Braunfels, Pleasanton and even Seguin. They are specially trained to help you sort through your criteria, examine neighborhood features and show you available homes that meet both your wants and your needs. Even if a property is not listed on the local MLS, your agent can make arrangements to show you the property.
Your agent can then schedule times for you to tour your property choices, and help you keep track of your likes and dislikes for each home or area. If your criteria changes, your agent can adjust your search accordingly.
Writing an Offer
Once you have found the home of your dreams, your agent will continue to research the market and help you to formulate and negotiate an offer. They can explain the terms of the contract to you, and help you put together an offer that is strong but also meets your specific needs. The offer will address a sales price, but will also cover issues of closing date, home warranty, repairs, title policy and more, and your agent can explain the who, what and why’s of each element. The agent will give you advice and information, but at the end of the day, it is your decision as to what price and terms you offer. REALTORs® are required to use specific state regulated contract documents. You are always advised to have an attorney of your choice review any offers or contracts if you so choose.
Once an offer is submitted, you wait for a response from the seller. Possible responses include:
- Acceptance: seller agrees to all terms as they were written, and signs the contract as-is.
- Counter-offer: seller does not accept your offer, but replies back either verbally or in writing with their own proposed terms. Then it becomes your turn to accept, reject, or counter the seller’s counter-offer.
- Reject: seller does not accept your offer and does not present a counter-proposal. Sometimes sellers will reject an offer and provide a list of changes that might make a future offer more agreeable, but the seller would not be bound by these terms.
It is important to note that contracts are not legally binding in Texas until signed by all parties. Many times offers are negotiated verbally for ease and expediency; however, until all parties (buyer and seller) have signed off on all terms, the contract is not enforceable.
In the case of multiple offers, there are very specific procedures that should be followed by the seller. Ultimately a decision as to which offer is accepted or countered lies in the hands of the seller alone, and even a full price offer may not be selected. A seller working with an agent should be advised to treat all parties fairly and no single offer should be given an unfair advantage over another. Your agent’s experience, education and professionalism can help you to navigate these tricky waters should you find yourself in this type of offer situation.
When the negotiating ends and everyone has signed off on the paperwork, you’re officially under contract. Earnest money will be kept in escrow with the title company, a neutral third party.
There will be several critical elements that you and your agent can work together to address and complete as you move the process towards closing.
- Inspection: You will want to have the property inspected almost right away. Home inspections can reveal serious problems, code violations or hazards that may not be visible to the untrained or naked eye. Your agent can help you to find a reputable inspector to review the home’s major systems and provide you with a detailed report. You can then use the report to negotiate repairs with the seller.
- Loan Process: Once you have a contract, you will want to begin the formal loan application process with your lender. They must provide you with a Good Faith Estimate (GFI) which outlines the fees and costs related to your mortgage, as well as monthly payments, interest rates and more. Once you have submitted the application and all documentation required by the lender, then the file goes through the mortgage underwriting department for verification and approval. The underwriting process can be a lengthy one, so quick submission of requested paperwork is essential. Once the file is reviewed in underwriting, the lender may have a list of conditions that must be met in order for the mortgage company to give final approval of the loan.
- Title Commitment: The title company will research the ownership history of the property and any liens that may be recorded against the buyer or seller. The liens on the property must be paid or cleared up before the title of the property can transfer from seller to buyer. The title company will use the information to issue a title insurance policy, which essentially is an insurance policy you, as the buyer and soon-to-be owner, have to guarantee that the seller had the right to transfer ownership to you and that no other parties or issues should arise that bring this right to ownership into question from prior acts or omissions.
- Appraisal: Your lender will order an appraisal of the property. This report is an official assessment of the property’s value, based on the market at the time of the appraisal. Appraisers have very specific requirements that they must meet in their reports to determine value. If the property appraises above the sales price, congratulations- you have equity. If it appraises below the sales price, your agent can advise you about your options- re-negotiating sales price, contesting the appraisal, terminating the contract or paying the difference out-of-pocket.
- Insurance: Homeowner’s insurance is a critical piece of the homeownership package. If you have a mortgage on your home, the mortgage company will require that you maintain insurance coverage, or they may even force you to pay for coverage, seek damages or even foreclosure. Finding the right type of coverage at the right price is something your agent and your lender can assist you in doing.
Once all of the above pieces come together, and the lender sends closing instructions to the title company for your loan, transfer of title, etc. you can arrange a time to close on the home. The title company will provide a breakdown of credits and expenses for both buyer and seller, called a HUD-1. You will generally go to a title company office to sign all closing paperwork and loan documents. You will deposit the balance of your down payment and closing costs to escrow, and your lender will deposit the balance of the purchase price. The deal is not closed until monies have been paid. This is often referred to as “funding.”
Once the property funds, you can pick up the keys and move into your new home! Your agent can help you make the necessary arrangements for moving, utilities and more.